Tag Archives: gold

On 17 March 1968 the system that fixed the price of gold at USD35.00 collapsed and the price of gold was allowed to fluctuate. Let’s have a quick look at the chart to see how gold has performed since it floated in 1968.

Since 1968 when gold floated, its price has grown at a CAGR of 7.7%.

Let’s look now at its monthly seasonality.

The following chart plots the average price returns for gold by month since 1968. For example, since 1968 the average return of the gold price in January has been 1.2%.

And the following chart plots the proportion of months that have seen positive returns. For example, in 60% of years since 1968 gold has had positive returns in February.

It can be seen that since 1968 gold has on average been strong in February, September and December. The weak months for gold have been March and October.

This profile of behaviour would seem to have some persistency as the same pattern can be seen for the more recent period 2000-2017, for example the following chart plots the average month returns from 2000.

The main new features recently have been the strength of gold in the months January, August and November, and the weakness in December.

Gold and equities

The following chart shows the ratio of the FTSE All Share Index to gold (priced in sterling) since 1968. One can regard the chart as the UK equity market priced in gold.

The ratio peaked at 18.8 in July 99 and then fell to a low of 2.3 in September 2011. Since 1968 the ratio average is 6.1

The above is an extract from the newly published UK Stock Market Almanac 2018.

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

To quickly recap a previous post, the FTSE 100 Index was launched in 1984 with a value of 1000 and closed 2013 at 6749. This is an increase of 575% over the 30 years, giving an annual growth of 6.57%.

Trendline

The following chart shows the price performance of the FTSE 100 Index 1984-2013. A simple linear trendline has been added.

The trendline calculates a value of 6695 for the end of 2013, which is just 54 points away from the actual value (less than 1% difference). As can be seen in the chart, the FTSE 100 Index is pretty much bang on its long-term (since 1984) trend.

Inflation-adjusted

The following chart plots the FTSE 100 Index against the real index (inflation-adjusted) for 1984-2013.

Inflation-adjusted the FTSE 100 Index closed 2013 at 2304 – an increase of 130.4% on the starting value 30 years ago, an average annual growth rate of 2.8%.

Comparison with S&P 500 and gold

The following chart plots the FTSE 100 Index against the S&P 500 Index and gold. The three series have been re-based to start at 100 for ease of comparison.

The above chart is not that useful as the S&P 500 Index and gold are both priced in dollars, so the following chart plots them in sterling terms against the FTSE 100 Index.